The consumer goods industry is well-poised to witness considerable growth this year and beyond, thanks to solid consumer spending and high purchasing power. Moreover, CPG companies are set for profitable expansion by embracing changing consumer needs and adopting new digital technologies to drive revenue and reduce costs.
Given the industry’s promising growth outlook, fundamentally sound consumer stocks Unilever PLC (UL), Yue Yuen Industrial (Holdings) Limited (YUEIY), and Mannatech, Incorporated (MTEX) could be ideal additions to your portfolio this week.
Inflation has fallen sharply from its peak of 9.1% in June 2022. In July, the consumer price index (CPI) grew 3.2% from a year ago, slightly below the 3.3% forecast but higher than the 3% recorded in June. Despite the uptick in the headline number, the July report showed that underlying inflation continued its cooling streak.
Core CPI, which excludes the more volatile food and energy prices, increased 0.2% for the month and was up 4.7% year-over-year. July is the fourth consecutive month that the annual core CPI has eased, and the rate landed below a Dow Jones consensus estimate of 4.8%.
As inflation eases significantly, consumer spending held up well in July, with retail sales increasing 0.7% for the month, higher than the 0.4% Dow Jones estimate. Excluding autos, retail sales grew 1%, against the 0.4% forecast.
According to Statista, value added in the consumer goods market is expected to total $3 trillion in 2023, and the market is projected to grow at a CAGR of 3.2% during the forecast period (2023-2028). Robust consumer spending and high purchasing power should boost the market’s growth.
Furthermore, consumer packaged goods (CPG) companies are positioning themselves for profitable expansion by embracing evolving consumer preferences, rapid adoption of digital technology, driving data through supply chains, and prioritizing environmental, social, and corporate governance (ESG).
The CPG industry has embraced emerging technologies in various areas of the business, from manufacturing to marketing. Digital transformation can help companies generate revenues while lowering costs, with other key benefits including developing effective e-commerce strategies, optimizing digital marketing efforts, and forecasting customer demand using AI.
In addition to predicting consumer demand, CPG companies can apply AI and analytics across the supply chain to reduce manufacturing waste and avoid supply chain disruptions. By tracking products from production to delivery, companies can streamline operations, improving customer satisfaction.
As per a report by Market Research Future, the consumer packaged goods market size is expected to grow from $5.48 trillion in 2023 to $6.98 trillion by 2030, exhibiting a CAGR of 3.5% during the forecast period.
Considering the industry’s bright growth prospects, buying quality consumer stocks UL, YUEIY, and MTEX could be wise for solid returns.
Let’s take a closer look at the fundamentals of these stocks:
Unilever PLC (UL)
UL is a fast-moving consumer goods company headquartered in London, United Kingdom. It operates through five segments: Beauty & Wellbeing; Personal Care; Home Care; Nutrition; and Ice Cream. It offers its products under the AXE, Bango, Ben & Jerry’s, LUX, Lifebuoy, Magnum, OLLY, Rexona, Seventh Generation, Sunsilk, The Vegetarian Butcher, Vaseline, and Wall's brands.
On April 3, UL, in partnership with Accenture (ACN) and Microsoft (MSFT), completed a huge cloud conversion project for UL’s 400+ consumer brands. Through Azure’s cloud platform, UL would be able to become a cloud-only organization, enhancing its product launches, customer service, and operational efficiency.
On February 14, UL announced the sale of its Suave brand in North America to Yellow Wood Partners LLC. The Sauve beauty and personal care brands comprise hair care, skin care, skin cleansing, and deodorant products. This sale is another significant step to the company’s path to shift its portfolio toward strategic growth spaces.
UL’s trailing-12-month gross profit margin of 41.02% is 25.9% higher than the industry average of 32.57%. Likewise, the stock’s trailing-12-month EBIT margin and net income margin of 16.32% and 13.61% are favorably higher than the industry averages of 7.26% and 3.86%, respectively.
In terms of forward non-GAAP P/E, UL is trading at 17.46x, 4.8% lower than the 18.34x industry average. Also, the stock’s forward EV/EBIT multiple of 14.40 is 6.9% lower than the industry average of 15.46.
UL pays an annual dividend of $1.88, translating to a yield of 3.72% at the current share price. Its four-year average dividend yield is 3.52%. The company has paid dividends for 12 consecutive years.
UL’s turnover for the first half increased 2.7% year-over-year to €30.43 billion ($33.14 billion). Its operating profit grew 22.6% from the year-ago value to €5.52 billion ($6.01 billion). Its profit before taxation came in at €5.27 billion ($5.74 billion), up 20.8% year-over-year. Also, the company’s net profit rose 20.7% year-over-year to €3.88 billion ($4.23 billion).
In addition, the company’s underlying EPS came in at €1.46, an increase of 9% over the prior-year period.
Analysts expect UL’s revenue for the fiscal year (ending December 2023) to increase 2.4% year-over-year to $66.02 billion. The consensus EPS estimate of $2.89 for the ongoing year represents a 4.9% rise year-over-year. Moreover, the company has surpassed the consensus revenue estimates in all four trailing quarters, which is impressive.
Shares of UL have gained 3.8% over the past nine months and 6.6% over the past year to close the last trading session at $50.53.
UL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UL has a B grade for Value, Stability, Sentiment, and Quality. It is ranked #5 of 56 stocks in the Consumer Goods industry.
Beyond what we stated above, we also have UL’s ratings for Momentum and Growth. Get all UL ratings here.
Yue Yuen Industrial (Holdings) Limited (YUEIY)
YUEIY is an investment holding company that manufactures, markets and sells athletic, casual, and outdoor footwear. Also, the company operates as an original design manufacturer for prominent brands such as Puma, Nike, and Timberland, producing leather products, soles, and other components. It is headquartered in Kwun Tong, Hong Kong.
In the latest financial results release, Mr. Lu Chin Chu, Chairman, said, “Despite the destocking cycle being experienced by the global footwear industry across the board, we have been able to defend our profitability to a certain extent thanks to the milestones we had already reached as part of our multi-year capacity allocation and digital transformation strategies. This fuels our optimism about the long-term prospects of our manufacturing business.”
He added, “The streamlined business structure, store refinements, omni-channel investments and our expanding alliances with brand partners will allow our retail business to further safeguard its long-term competitive edge.”
In terms of forward EV/Sales, YUEIY is trading at 0.37x, 68.7% lower than the industry average of 1.18x. And the stock’s 4.43x forward EV/EBITDA is 54.4% lower than the industry average of 9.70x. Moreover, its forward Price/Sales multiple of 0.25 is 71.2% lower than the industry average of 0.86.
YUEIY’s annual dividend of $0.70 translates to a yield of 10.72% at the current price level. Also, its four-year average dividend yield is 4.83%.
For the first half that ended June 30, 2023, YUEIY’s manufacturing ASP increased 7.5% year-over-year to $21.67 per pair, driven by relatively strong demand for the group’s high-end footwear. Its other income for the period grew 8.4% year-over-year to $66.50 million. In addition, the company’s net free cash inflow amounted to $281 million.
Street expects YUEIY’s revenue for the fourth quarter (ending December 2023) to increase 6.7% year-over-year to $2.13 billion. Likewise, the company’s revenue for the fiscal year 2024 is expected to grow 10% from the previous year to $9.10 billion.
Over the past nine months, YUEIY’s stock has gained 6.9% to close the last trading session at $6.54.
YUEIY’s POWR Ratings reflect its robust prospects. The stock has an overall B rating, translating to a Buy in our proprietary rating system.
YUEIY has an A grade for Value and a B for Stability. It is ranked #7 out of 56 stocks within the same industry.
Click here to see the additional ratings for YUEIY (Momentum, Growth, Sentiment, and Quality).
Mannatech, Incorporated (MTEX)
MTEX is a global health and wellness company. It develops, markets, and sells nutritional supplements; topical and skin care and anti-aging products; and weight-management and fitness products. The company sells its products directly and through e-commerce and network marketing channels.
On April 18, MTEX announced the formation of a new wholly-owned subsidiary, which will function as an innovation hub for the company. This subsidiary introduced the brand Trulu to the gig economy after thorough research and study. The new entity will operate separately from MTEX but is integral to the company’s future growth.
MTEX’s trailing-12-month gross profit margin of 76.23% is 134% higher than the industry average of 32.57%. Also, the stock’s trailing-12-month asset turnover ratio of 2.62x is 186% higher than the industry average of 0.92x.
In terms of the trailing-12-month EV/Sales, MTEX’s 0.16x is 90.9% lower than the 1.73x industry average. Likewise, its trailing-12-month Price/Sales multiple of 0.17 is 84.7% lower than the industry average of 1.08.
The company’s annual dividend of $0.80 translates to a 6.64% yield on the prevailing share price, while its four-year average dividend yield is 6.43%. MTEX’s dividend payouts have grown at CAGRs of 17% and 5.1% over the past three and five years, respectively.
MTEX reported net sales of $32.59 million for the second quarter ended June 30, 2023. Its gross profit came in at $25.59 million for the period. The company’s current assets stood at $31.25 million as of June 30. 2023. Also, its current liabilities lowered to $28.24 million as of June 30, 2023, compared to $29.84 million as of December 31, 2022.
Analysts expect MTEX’s EPS to grow by 17.5% per annum over the next five years. Over the past month, the stock has gained 2% to close the last trading session at $12.04.
MTEX’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
MTEX is ranked #4 of 60 stocks in the Consumer Goods industry. It has an A grade for Value and Quality and a B for Sentiment. To access additional ratings of MTEX for Growth, Momentum, and Stability, click here.
What To Do Next?
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UL shares rose $0.17 (+0.34%) in premarket trading Tuesday. Year-to-date, UL has gained 3.39%, versus a 16.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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